Certified Government Financial Manager (CGFM) Practice Exam 2026 - Free CGFM Practice Questions and Study Guide

Contracts are indeed a common form of intergovernmental revenue primarily because they link funding for specific projects or services. This means that federal contracts are often awarded to states and local governments to carry out projects or deliver services that are in line with federal objectives, such as infrastructure development, public health initiatives, or educational programs.

The specificity in contracts ensures that funds are allocated for designated purposes, which not only supports the execution of projects but also facilitates accountability and performance measurement. By having these contracts, governments can ensure that the money is being used as intended, thus creating a clear connection between federal funding and its application at the state or local levels. This framework enhances coordination and collaboration among different levels of government, reinforcing the intergovernmental relationship in handling public resources.

The other options focus on aspects that may not fully capture the essence of why contracts are specifically valued in revenue intergovernmental dynamics. For instance, while outlining federal guidelines for spending and public disclosure of the spending process are pertinent aspects of government funding, they do not encapsulate the direct relationship between funding and designated projects as contracts do.